Finance Committee on Nov. 28th, 2022

[Sophie Chatel, Liberal, Pontiac, QC]

I noticed another piece of good news: the unemployment rate will fall below the rate you'd predicted.

I think that's all the time I had. Thank you for your excellent work.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Chatel.

We'll now move to the Bloc with MP Ste-Marie for six minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Giroux and Ms. Grinshpoon. Thank you for agreeing to appear before the Standing Committee on Finance on such short notice. We're very grateful to you for that. Thanks as well for the three studies you released this morning. They'll be very useful to us.

Since we'll be conducting clause-by-clause consideration of Bill C‑32 at our next meeting, the committee will have devoted only two meetings to the study of this bill: one with the officials of the departments concerned and this one today.

My first questions will focus on parts of your statement, Mr. Giroux.

In particular, you said that the government had announced $14.2 billion in new measures without providing details on that spending, which represents 27% of new measures in the fall economic statement 2022.

Would you please explain to us at greater length how that's being presented? Why do you think no more details are provided?

[Yves Giroux]

Thank you for your question.

The $14.2 billion I mentioned in my opening remarks will be paid out over a period of six fiscal years beginning with the current fiscal year, under two headings: defence initiatives that have yet to be announced, but also anticipated near-term pressures, that is, in the next six years.

We assume that the funds will be used for measures that the government plans to announce in the coming months. As for the anticipated pressures, they seem to be fairly well known and well quantified, since the numbers do not appear to be rounded. Again, we don't have any details, though.

When my office and I asked Finance Department officials questions, we were basically read the headings. So that information was not very helpful to us. In my view, this raises questions about the transparency of the fall 2022 Economic and Fiscal Update.

The government seems to know a lot of the measures that will be funded, but they are not yet disclosing them. So that's why we mentioned that these amounts seemed to be fairly specific.

The risk I see is that once the measures are announced, it will be difficult to determine where the funding announced under these two somewhat mysterious headings will have been mentioned: in Budget 2022, Budget 2021 or the fall 2022 Economic and Fiscal Update.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much for your explanations.

We'll get to the bottom of this. I see that the Parliamentary Secretary to the Deputy Prime Minister and Minister of Finance, Mr. Beech, is here with us today. I just want to notify him that we will be questioning the government on this. It's unacceptable that this document doesn't provide more detail than that.

I will now go back to your speech. The last part of it also surprised me. The government reports being $3 billion over its first spending review target, but the statement provides no explanation, no source, no date.

Can you explain this in more detail?

[Yves Giroux]

Of course.

In Budget 2022, which was tabled in April, the government committed to two types of spending review.

If memory serves, the first was to focus on COVID‑19 spending after the budget was tabled. The government had mentioned it was going to try to reduce that spending for fiscal 2022‑23 or 2023‑24, I believe.

In its fall 2022 Economic Statement in November, the government claimed victory because it had reduced spending for the fiscal year, even though the fiscal year was already over when the budget was tabled in April. By taking credit for things that happened in the past, most of which must have already been known when the April budget was tabled, the government appears to be trying to avoid having to do the thorough spending review it committed to in April.

This calls into question the credibility of the upcoming Strategic Policy Review, if there is one. It's supposed to generate $6 billion in savings per year by 2026‑27, and $3 billion per year thereafter.

So it's a little hard to follow the government's rationale for claiming victory based on this initial review.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

I agree with you when you say that it calls into question the credibility of the comprehensive Strategic Policy Review. We will certainly keep that in mind.

You talked about the International Monetary Fund's standard that recommends governments publish their annual financial statements within six months, which Canada has not done this year.

Is this a new practice? Is this the first time Canada hasn't done so? Is it common practice in other countries to not follow these guidelines, or is Canada the only poor performer in that regard?

[Yves Giroux]

These are not new recommendations from the International Monetary Fund. These are part of best practices in accountability. I haven't done a comprehensive review of what other countries are doing in the G7, G20 or even the Organisation for Economic Co‑operation and Development (OECD). I don't believe Canada is the worst country, but I don't think it's the best either in terms of the amount of time it allows between fiscal year end and releasing its financial statements.

On the other hand, I know that a good number of provinces are capable of doing a better job than the federal government. I've heard officials say that the federal government publishes many more pages than the provinces: that's true, but the federal government also has many more officials than the provinces to do the same job.

Therefore, the federal government could do a much better job when it comes to accountability. It would help you do a better job as parliamentarians. You would know what the deficit or surplus is for the previous fiscal year when the year is well under way for you. This also applies to the departmental results reports, which you and I have yet to receive: it's almost December and the year is coming to a close.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We'll now go to the NDP with MP Blaikie for six minutes, please.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

I want to come back to this question of cost reduction that the government alludes to.

What do you think ought to be reported? Whether it's Canadians themselves or parliamentarians who are analyzing the government's claims about cost reductions, what kind of information do you think should be made available? Where is the best place for that information to be available? Should it have been in the fall economic statement alongside the claim about savings? Does it just belong in public accounts? Where and how do you think that should be reported, so that we meet an acceptable bar of transparency?

[Yves Giroux]

That's an interesting point. When a government decides to embark on a cost reduction or efficiency initiative, it owes it to parliamentarians at the very least, and Canadians more generally, to be clear about its objective—what's within scope, what's out of scope, the year when it will begin, the year when it will start to apply, when it will mature and all that—and the criteria it will use to determine what is effective spending and what has to be cut or let go of. I haven't seen anything like that for the exercise for which the government claims credit for things that should happen in the future, but the government claims credit for what's happened in the past. I haven't seen any such criteria for the more strategic policy review that is still to be done.

However, in this strategic policy review that has yet to begin, there is still scope for the government to lay out what's in scope, what's out of scope and what criteria will be used to determine what will be cut and what will not be cut, so that public servants working in these areas or groups or stakeholders who receive or benefit from government spending in these areas have an idea of what to expect.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

What would you say are some of the candidate reportable items? If you were reporting out on cost-saving measures, would you anticipate seeing a reduction in staff for a particular program? Would you anticipate seeing a reduction in successful applicants? Would you anticipate having some kind of allusion to reordering procurement contracts and showing savings? It wouldn't necessarily be revealing the contract but saying that we used to pay x for the supply of this good and now we're paying y.

What are some of the things you would be looking for in a report by government in order to validate its claims about cost savings?

[Yves Giroux]

First of all, I should say that professionally I am agnostic as to whether the government embarks on that or not. That's a government decision. The government has made its decision known that it will do strategic reviews. Now that it has decided to do that, I think it has a duty of transparency. To your question, I expect the government to clearly identify which areas and which programs and to provide a “before and after” picture, so that my office can have a pretty good idea as to whether these targets will be met or will not be met.

For example, let's say the government were to say that we want to reduce our footprint. What's the starting point and what's the end point so that we can measure the accuracy of the government's claims? If it's a reduction in the number of employees, it's the same thing, although that's more easily measurable. We have numbers for that. If it's grants and contributions in specific areas, it's the same thing. What were the numbers before and what's the end point that the government has in mind?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

With respect to some of the measures we were talking about earlier, such as the Canada housing benefit, the dental benefit and the GST credit, you said that the inflationary impact of those programs would be negligible. I'm curious to know, of the $54 billion or so of the new spending for the government's windfall, how much of that is accounted for by these non-inflationary direct transfers to Canadians households, which, while they don't impact inflation, surely will have a net-positive impact on Canadian household budget sheets.

[Yves Giroux]

Off the top of my head, I think it's about $4 billion or $5 billion in these temporary measures, plus the dental benefits. As to the $52 billion in total, even though the $4 billion or $5 billion in this assistance for lower-income Canadians doesn't have a meaningful inflationary impact, once you start adding these measures, and you get from $4 billion or $5 billion to $52 billion, then the inflationary impact gets obviously higher.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

What would you point to as the new spending that government is undertaking to get to that $54 billion? I mean, obviously, some of these programs are part of that, and we know they're not likely to have a high inflationary impact, but are there others that you're concerned about? How do you get to the $54 billion? What are some of those programs that don't involve direct transfers to Canadian households?

[Yves Giroux]

I'm concerned about specific areas. For example, we see that the government has core responsibilities when it comes to serving Canadians. We've seen that with passports, old age security applications, EI applications and immigration applications. We've seen the trouble the government has had in fulfilling those services. In the fall update, rather than seeing a rejigging or efficiency gains, we've seen the government pouring more resources into those sectors to, admittedly, meet the service standards that Canadians expect of their government.

I was a bit surprised not to see a better effort at improving efficiency. We've heard throughout the pandemic that people who work from home are at least as productive as they were when they worked in the office, but that's not what we have seen. That's not what my office has seen when asking simple questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

We're well over, but that is the end of our first round.

Members, looking at the time and our second round, I'll be generous, but we are going to divide the time equally amongst the parties. If you want to prepare, in case you had two members and you want to split some time, we are starting. It will be about five minutes for each party.

We'll start with the Conservatives. I have MP Morantz up for five-plus minutes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I will share some of my time with Mr. Lawrence.

Thank you for being here. I always enjoy your perspective on these matters.

I want to ask you about the $14.2 billion. One of the functions of your office is to ensure that the government is being transparent with Canadians when it comes to the allocation of their tax dollars. We had the finance minister in here just a few minutes ago; you were in the room. I asked her about this, and she said something like we need to look around the corner. I asked her if she would table details of this spending, and she would not agree to do that.

Are you concerned? With $14.2 billion—I sometimes think we get immune to these numbers when we hear about $500-billion deficits and $1.2 trillion in debt, but $14.2 billion is big chunk of change.

Are you concerned and have you made these concerns known to the government that they are not being nearly as transparent as they should be with this kind of spending?

[Yves Giroux]

The government will be announcing measures, for sure. It has set aside some money. It will then announce some of those measures. It will present the gross costs. Then, in fiscal tables, it will present, minus resources already allocated, so it will present it as a net cost that is significantly lower than the gross cost.

It will be very difficult for any of us to ever reconcile that $14.2 billion with the minus amounts previously allocated, so it will be very difficult for any of us around this room or the people who work with us to reconcile whether all of those 14.2 billion dollars have been fully used or whether they have been double counted.

That is a concern I have. I have made that known to finance officials several times. My opinions on that are no secret.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you very much. I appreciate that response.

We had the bank governor here a few days ago. I had a chance to ask him some questions. One of the questions I asked him was, if deficit spending had been lower over the last two years, would inflation have been less?

The reason I asked him is that the government's position all along has been that inflation is a global issue and that we see inflation in many countries, some a little bit higher, some a little bit less. What I asked the governor was to parse out this particular factor. Is government spending a factor in inflation? Would inflation be less if government spending was less? Would inflation be more if government spending was higher? He did acknowledge that lower government spending would have had a positive impact. In other words, it would have made the inflation rate a little bit lower.

I know that your mandate isn't only to do financial analysis but also economic analysis. Do you agree with the governor's response to my questions in that meeting?

[Yves Giroux]

It's clear that, had government spending or the deficits been lower, inflation would be lower. I don't think inflation would be 2% in the absence of a government deficit, but, without any doubt, inflation would have been lower. “By how much?” is the big question, and I don't have the answer to that.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

That's fair enough.

I'll cede my time to Mr. Lawrence. He has about a minute, I think.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I have a quick question on the inflationary impact of the carbon tax.

Tiff Macklem said that, when it was at $40 per tonne, the inflationary effect on gasoline, natural gas and fuel oil was about 0.4%. We now see it going up to $65 per tonne. That's about a 60% increase in the carbon tax.

Would it be fair to say that—based on Tiff Macklem's analysis, as well as your own—you could reduce inflation by upwards of a full per cent, if, in fact, the carbon tax were removed? If you don't have an answer right off, that's fine. You can get back to us

[Yves Giroux]

That's something I would have to get back to you on, because there could be substitution effects affecting the number.